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Chipotle Mexican Grill (ticker: CMG) announced yesterday that its board of directors has approved a 50-for-1 stock split, which it says will be one of the largest stock splits in the history of the New York Stock Exchange (NYSE). Here’s what the stock split means and what should happen next for CMG.
What is a stock split?
A stock split is done when a company decides to create more shares in itself from its existing stock. Splits can be made in any ratio, such as 2 for 1 or 10 for 1, for example. This first number in the ratio indicates the number of shares in the company for every share currently in existence before the split.
To keep the example simple, let’s say there is a company with a total of 100 shares today. If they did a 2-for-1 stock split, this company would now have 200 shares in total. If they split the stock 10-for-1, the existing 100 shares of this company will become 1,000 shares after the split.
How much does Chipotle spit out stock?
Chipotle splits its stock often. The company’s board of directors approved a 50-for-1 stock split. Many stock splits are in the 10-for-1 range or less. In January, Walmart announced a 3-for-1 stock split. A 50-for-1 split is very rare, which is why Chipotle described its split as “one of the largest stock splits in the history of the New York Stock Exchange (NYSE).”
Why do stocks split?
Stocks are usually split simply to make the stock price of an individual share cheaper than it currently is. If the stock price is too high for a single stock, it may be a physiological barrier for individual investors to buy into the stock. (In addition to Walmart, Amazon and Google are among the notable companies that have split their stock in recent years.)
Since a stock split not only creates more shares, but also lowers the stock price by a proportional amount (since there are now more shares), the stock can “feel” more affordable to ordinary investors, which may encourage them to invest in some of the shares.
For example, Chipotle’s stock price is currently around $2,985 per share in pre-market trading as of the time of this writing. This is a high price for just one share. Even if a small investor had $2,000 to invest in the market, he would not be able to buy a single full share of CMG at today’s price.
However, after the CMG stock split, Chipotle’s stock price will be 50 times lower, which now means that someone with $2,000 to invest will be able to buy many more shares in the company.
“This is the first stock split in Chipotle’s 30-year history, and we believe this will make our stock more accessible to employees as well as a broader range of investors,” CFO Jack Hartung said in the announcement.
Will Chipotle become a more valuable company due to a stock split?
It’s impossible to know whether a company will become more valuable after a stock split, but you can’t predict what the stock will do in the future. However, it’s safe to say that a stock split by itself won’t make Chipotle a more valuable company.
This is because although there may be 50 times more shares, there will also be 50 times fewer than there were before the split, so the total value of all the shares immediately before and after the split will add up to the same market value.
what happened after that?
While Chipotle’s board of directors did consent After a stock split, the split must be approved by shareholders by vote. The company will put forward an amendment to shareholder approval of the stock split at its annual meeting on June 6, 2024.
When will Chipotle stock split?
If Chipotle shareholders approve the stock split, shareholders of record as of Tuesday, June 18, 2024, will receive an additional 49 shares of CMG stock for every share they own after the market closes on Tuesday, June 25, 2024. When the market opens on Wednesday, June 26, 2024, shares of CMG stock will begin trading CMG at its new revised price.
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